December 31, 2016 Endowment Quarterly Investment Report

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Performance Review

University of Guelph Endowment Funds

4th Quarter 2016

Prepared by: 
Pavilion Advisory Group Ltd. 
1250 René-Lévesque Blvd. West, Suite 4030 
Montreal, Quebec 
H3B 4W8 Canada

Endowment Funds Results Overview

(Net Returns for the 12 months ended December 31st, 2016)
The Total Endowment Funds gained 10.7% over the last 12 months, outperforming their unhedged benchmark by 4.4% and their hedged benchmark by 3.1%.

 

Canadian Equity U.S. Equity
  • The Canadian equity portfolio gained 28.5% over the past year, 7.4% above the return of the S&P/TSX index.
  • Both Burgundy and Sionna contributed to the strong performance with 30.6% and 24.0% returns respectively.
  • The S&P/TSX index posted a 21.1% return over the past year while both Burgundy and Sionna outperformed this benchmark by 9.5% and 2.9% respectively.
  • U.S. equity markets performed well in Canadian dollar terms with a 1-year return of 8.1% for the S&P500.
  • The Endowment’s U.S. equity investments gained 13.4% over last year, outperforming the S&P500 index by 5.3%.
  • The U.S. large cap manager (Fiduciary) beat the S&P 500 index by 2.3%, and the mid cap mandate managed by Wedge lagged its benchmark by 4.9%. Wedge’s small cap strategy also underperformed its benchmark, Russell 2000 Value Index, by 4.8% over the past year.
Non-North American Equity Fixed Income
  • In Canadian dollars, non-North American equities in developed markets underperformed both Canada and the U.S. with a return of -2.0%, while emerging markets equities gained 7.7% over the past year.
  • Tweedy Browne and LSV outperformed the MSCI EAFE index by 2.3% and 2.0% respectively.
  • The emerging markets manager (LSV) outperformed the MSCI Emerging Markets index by 5.7% over the past year.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, closely matched its return of 1.7%.
  • The cash return was slightly negative due to losses on internal foreign exchange transactions.
  • The infrastructure portfolio managed by Brookfield outperformed its index by 0.8% over the past year. Short term returns should be interpreted with caution due to important foreign exchange fluctuations.

Total Endowment Portfolio Vs Endowment Policy Benchmark

As of December 31, 2016 (Gross of Fees, Annualized for Periods over 1 Year)

vertical bar graph illustrating total endowment portfolio vs endowment policy benchmark: current quarter 4.1 vs 1.2 benchmark return vs 1.5 benchmark return (hedged); 1 year 11.3 vs 6.3 benchmark return vs 7.6 benchmark return (hedged); 3 years 8.3 vs 8.8 benchmark return vs 7.6 benchmark return (hedged); 5 years 11.3 vs 10.8 benchmark return vs 9.9 benchmark return (hedged); 10 years 5.6 vs 5.0 benchmark return vs 4.6 benchmark return (hedged)

 

Returns are presented gross of fees in CAD.
Endowment Policy Benchmark: 30% FTSE TMX Bond Universe + 7.5% Infrastructure (CPI+5%) + 17.5% S&P/TSX Composite + 20% S&P 500 ($CAD) + 20% MSCI EAFE Net ($CAD) + 5% MSCI Emerging Markets Index. The Hedged Endowment Policy Benchmark has the same composition as the Endowment Policy Benchmark, but all foreign indices are 50% hedged back to Canadian dollars since November 2010.

 

Asset Class Performance

As of December 31, 2016 (Gross of Fees)

 

Asset Class Performance
  Allocation Annualized Performance(%) Annual Performance(%)
  Market Value($) % of portfolio Quarter To Date 1 Year 3 Years 5 Years 10 Years 2016 2015 2014 2013 2012 2011
Canadian Equity 76,643,919 18.5 8.9 28.9 7.0 10.7 6.2 28.9 -11.7 7.5 21.6 11.7 -5.5
S&P/TSX Composite Index     4.5 21.1 7.1 8.2 4.7 21.1 -8.3 10.6 13.0 7.2 -8.7
Relative Performance     4.4 7.8 -0.1 2.5 1.5 7.8 -3.4 -3.1 8.6 4.5 3.2
US Equity 95,718,762 23.2 8.9 14.2 18.2 22.3 9.8 14.2 16.2 24.4 43.0 15.9 2.6
S&P 500 Index (CAD)     5.9 8.1 17.7 21.2 8.5 8.1 21.6 23.9 41.3 13.4 4.6
Relative Performance     3.0 6.1 0.5 1.1 1.3 6.1 -5.4 0.5 1.7 2.5 -2.0
Non-North American Equity 81,407,971 19.7 2.3 1.2 8.0 14.2 4.2 1.2 18.2 5.2 32.6 16.6 -2.1
MSCI EAFE Composite     1.3 -2.0 6.8 13.1 2.7 -2.0 19.4 4.1 31.5 15.2 -9.6
Relative Performance     1.0 3.2 1.2 1.1 1.5 3.2 -1.2 1.1 1.1 1.4 7.5
Emerging Markets Equity 18,377,262 4.4 1.6 14.5 7.0 9.3 N/A 14.5 -2.6 9.7 6.4 20.0 -15.9
MSCI Emerging Markets Index     -2.1 7.7 5.7 7.4 3.6 7.7 2.4 7.0 4.3 16.0 -16.2
Relative Performance     3.7 6.8 1.3 1.9 N/A 6.8 -5.0 2.7 2.1 4.0 0.3
Canadian Fixed Income 108,536,393 26.3 -3.3 2.0 4.8 3.7 5.0 2.0 3.6 8.9 -1.0 5.3 8.7
FTSE TMX Canada Universe Bond Index     -3.4 1.7 4.6 3.2 4.8 1.7 3.5 8.8 -1.2 3.6 9.7
Relative Performance     0.1 0.3 0.2 0.5 0.2 0.3 0.1 0.1 0.2 1.7 -1.0
Infrastructure 24,694,887 6.0 14.6 8.9 17.6 N/A N/A 8.9 33.5 11.8 N/A N/A N/A
CPI + 5%     0.9 6.5 6.5 6.2 6.6 6.5 6.6 6.5 5.7 6.0 7.3
Relative Performance     13.7 2.4 11.1 N/A N/A 2.4 26.9 5.3 N/A N/A N/A
Internal Cash 8,285,208 2.0 0.0 -0.3 -1.3 -1.1 N/A -0.3 -1.8 -1.8 -1.9 0.0 6.7
FTSE TMX Canada 91 Day T-Bill     0.1 0.5 0.7 0.8 1.4 0.5 0.6 0.9 1.0 1.0 1.0
Relative Performance     -0.1 -0.8 -2.0 -1.9 N/A -0.8 -2.4 -2.7 -2.9 -1.0 5.7
Total Endowment
Gross of Fees		 413,221,028 100.0 4.1 11.3 8.3 11.3 5.6 11.3 2.9 10.8 19.6 12.5 0.8
Net of Fees     3.9 10.7 7.6 10.7 5.1 10.7 2.3 10.2 19.1 12.0 0.3
Relative Performance     0.2 0.6 0.7 0.6 0.5 0.6 0.6 0.6 0.5 0.5 0.5
Endowment Policy Benchmark (Hedged)     1.5 7.6 7.6 9.9 4.6 7.6 4.6 10.8 16.7 10.3 -1.1
Relative Performance     2.6 3.7 0.7 1.4 1.0 3.7 -1.7 0.0 2.9 2.2 1.9
Total Endowment (Gross of Fees) 413,221,028 100.0 4.1 11.3 8.3 11.3 5.6 11.3 2.9 10.8 19.6 12.5 0.8
Total Endowment ex. FX Overlay     4.0 9.9 9.9 12.5 6.2 9.9 7.7 12.3 21.4 11.9 1.2
Relative Performance     0.1 1.4 -1.6 -1.2 -0.6 1.4 -4.8 -1.5 -1.8 0.6 -0.4

Endowment Policy Benchmark (Hedged): 30% FTSE TMX Bond Universe + 7.5% Infrastructure (CPI+5%) + 17.5% S&P/TSX Composite + 20% S&P 500 ($CAD) + 20% MSCI EAFE Net($CAD) + 5% MSCI Emerging Markets Index.. All foreign indices are 50% hedged back to Canadian dollars since November 2010.

All returns are reported gross of fees in CAD except for the Total Endowment where returns are displayed both net and gross of fees. EAFE stands for Europe, Australasia and Far East. Cash amounts and percentages presented exclude residual manager cash balances and currency overlay (currency hedging).

 

Performance Attribution

Total Endowment Funds Vs Endowment Policy Benchmark
1 Year Ending December 31, 2016

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund 11.34 vs endowment policy benchmark 6.35, total value added 4.99 part 2 attribution of total value added: asset allocation -0.23; manager value added 3.92; FX hedge and other 1.30 part 3 average active weight, contribution to total asset allocation value added (-0.23) and contribution to total manager value added (3.92) by canadian equity are -1.06, -0.27 and 1.26; us equity 1.42, 0.05 and 1.43; non-north american equity 1.74, -0.30 and 0.73; emerging markets -0.28, -0.02 and 0.31; canadian fixed income -2.58, 0.02 and 0.08; infrastructure 0.07, 0.25 and 0.11; internal cash 0.80, 0.03 and 0.00

Returns are presented gross of fees in CAD. 
Endowment Policy Benchmark: 30% FTSE TMX Bond Universe + 7.5% Infrastructure (CPI+5%) + 17.5% S&P/TSX Composite + 20% S&P 500 ($CAD) + 20% MSCI EAFE Net ($CAD) + 5% MSCI Emerging Markets Index. 
The Benchmarks do not assume currency hedging. 
“Other” includes the effects of all other factors on the Total Endowment's relative returns, including rebalancing and residual trading activity. 

 

 

Endowment Asset Mix

Actual Allocation vs. Investment Policy Allocation 
As of December 31, 2016

bar graph illustrating endowment asset mix. total value $413,221,028 market value, target allocation, actual allocation and allocation difference for canadian equities are $76,435,680, 17.5%, 18.5% and 1.0%; us equities $87,226,492, 20.0%, 21.1% and 1.1%; non-north american equities $75,926,436, 20.0%, 18.4% and -1.6%; emerging markets $18,377,262, 5.0%, 4.4% and -0.6%; Canadian fixed income $108,536,393, 30.0%, 26.3% and -3.7%; infrastructure $24,466,382, 7.5%, 5.9% and -1.6%; cash $22,252,473, 0.0%, 5.4% and 5.4%

 

Note: This actual allocation displays the aggregate managers' holdings regardless of their mandate. Cash includes internal cash directly owned by the Endowments and manager residual cash balances (data from CIBC Mellon). 

 

 

Growth of Endowment Assets

December Market Values and Net 1-Year Returns to December 31st of Each Year


 
 
 combined bar and line graph illustrating year over year comparison of the quarter-end market values and net 1-year returns to quarter-end of each year. $M endowment fund market value for 2007 170.9 2008 145.9 2009 172.1 2010 206.6 2011 214.0 2012 246.1 2013 295.1 2014 325.2 2015 337.1 2016 413.2 percentage Cad$ return net for 2007 -7.1% 2008 -15.6% 2009 14.4% 2010 9.8% 2011 0.3% 2012 12.0% 2013 19.1% 2014 10.2% 2015 2.3% 2016 10.7%

 

 

Over the last 12 months the total Endowment portfolio increased $76.1 M to $413.2 M consisting of: 
– Total contributions of $46.3 M and distributions of $7.4 M. 
– 1-year return (net of investment management fees) of 10.7% compared to 2.3% one year ago. 
Per Expendable Fund Investment Policy approved by the Board on Jun. 3, 2016, all sinking funds and a portion of expendable funds are now invested in this portfolio.